Prime Minister Andy Burnham has announced an £850 million tax reduction on energy bills as part of efforts to alleviate the cost-of-living crisis in the United Kingdom. The measure, which will take effect from October 1, will eliminate the 5% value-added tax (VAT) on household energy bills, generating an estimated average saving of around £45 per household.
The initiative is set to be partly financed through the cancellation of the digital ID programme, a project previously championed by former Labour leader Sir Keir Starmer. The scheme was projected to cost approximately £600 million annually over the next three years and had been slated for funding by reprioritising existing departmental budgets. Chancellor John Healey confirmed that these savings would now be redirected to support the VAT cut.
According to industry analysts, the energy price cap set by the regulator Ofgem currently stands at £1,849 for an average household. However, ongoing hostilities related to the conflict between the United States and Iran may exacerbate volatility in global oil and gas markets, potentially driving prices higher.
Burnham emphasized the urgency of the tax cut, stating that the government aimed to provide immediate financial relief to families facing rising bills. The government also expects energy suppliers to transfer the VAT reduction to all customers, including those on fixed-rate contracts.
Economists estimate that the VAT removal will reduce the consumer prices index (CPI) inflation rate by approximately 0.10 percentage points in 2026-27. Given that Northern Ireland remains subject to EU VAT regulations post-Brexit, the cut will not directly apply there. Instead, the Stormont executive is set to receive funding to deliver comparable support to households in the region.
Burnham’s announcement comes amid significant reshuffling within his administration following his recent appointment as Prime Minister. At his first cabinet meeting, Burnham oversaw the dismissal of several senior figures aligned with Sir Keir Starmer, including former deputy prime minister David Lammy, ex-attorney general Lord Hermer, and former housing secretary Steve Reed.
The reshuffle included key appointments such as John Healey as Chancellor of the Exchequer, Ed Miliband as Foreign Secretary, Wes Streeting as Defence Secretary, and Angela Rayner returning as Housing Secretary. Louise Haigh, a close ally of Burnham, was elevated to First Secretary of State and Chancellor of the Duchy of Lancaster, positioning her as a central figure in coordinating government policy.
The government also abolished the Department for Science, Innovation and Technology, reallocating its responsibilities to other departments. Jonathan Reynolds was appointed Business Secretary with an expanded portfolio that now includes science and innovation, while Lisa Nandy retained her role as Culture Secretary with added oversight of digital affairs. In addition, Kanishka Narayanan was appointed as the first dedicated AI Minister reporting to Cabinet.
Among other key roles, Ellie Reeves was promoted to Attorney General, and Anneliese Midgley was named chief whip. Regional representation in the Cabinet remains unchanged with Bridget Phillipson and Sir Alan Campbell continuing in ministerial positions, though Phillipson shifted from Education Secretary to women and equalities minister, succeeded in education by Labour deputy leader Lucy Powell.